Lower energy costs buoy living standards: But for how long?

March 24, 2015

When households are looking at where they can be better off, electricity prices are often high on the agenda. Finding ways to slash energy bills or shopping around to determine which companies have the best option are routes many families take.

However, when it comes to living standards, Australians could find they have a bit more in their back pocket. The first SAS-NATSEM household budget report found that families across the country enjoyed improved living standards in 2014. Among other factors, lower energy costs and petrol prices are each playing a part.

The index examines two key indexes: The cost of living index and the standard of living index. The former includes the everyday charges households face, like energy bills, while the latter is the remaining disposable income families have after paying for those necessaries.

The report shows that living costs only increased 1.4 per cent over the year to December. As part of this, utility prices dropped 2.4 per cent over the year, which is helping to buoy living standards nationwide. Over the year, Australian households were financially better off by 1.2 per cent. The Australian Bureau of Statistics (ABS) Consumer Price Index confirms this. While the housing category rose 2.4 per cent over the 12 months to December last year, the price of electricity fell 4.4 per cent.

However, research by Uniting Care found that Australians are paying more on network charges than many other countries in the world. This is hurting lower incomes in particular, which is also reflected in the SAS-NATSEM report. Households with incomes in the top 20 per cent saw an 18 per cent increase in living standards, which is significantly more than the bottom 20 per cent.

"The highest charges in Australia are four times more than the lowest charges, and double the highest price charged in Great Britain," said Lin Hatfield Dodds, National Director of UnitingCare Australia, in a February 11 release.

"It is important that we ensure Australians are paying a fair and reasonable price for their electricity."

Keeping prices down

One of the most heated debates has surrounded whether privatising the energy sector hikes up energy bills. The Grattan Institute has weighed in on the discussion, analysing ABS data to determine the impact on prices. It found that private companies charge lower prices than their public counterparts. For example, while electricity prices have risen relatively consistently, electricity charges in Victoria have remained lower than those in Queensland and New South Wales.

However, the argument is not so clear cut. While privatisation doesn't necessarily impact electricity bills, it may be a matter of regulation rather than charges. The Australian Energy Regulator (AER) has a great deal to do with this. The AER's new benchmarking policies are intended to keep a leash on network costs, but a report by ratings agency Standard and Poor suggested that this might not be effective for some time to come.

"While the AER expects the state-owned companies to significantly improve operating efficiency in line with privately owned companies - as per its benchmarking guidelines - this is likely to take some time to achieve," said the study, as reported by Renew Energy on February 11.

A study by St Vincent de Paul Society found that the simple act of changing energy suppliers could save households hundreds of dollars a year, which could signal that households need to be on the ball when it comes to their energy provider. In fact, the research into Victorian energy prices found that some consumers are paying between $500 and $800 more year than they need to.

This is a sound reminder that switching energy companies could save you large amounts on your bills. With so many options available, electricity comparison can be confusing and strenuous. Take the hard work out of the process by consulting with a switching service, like Make It Cheaper, who can find deals to suit your circumstances.